The Biggest Myth in Spatial Econometrics

Abstract

There is near universal agreement that estimates and inferences from spatial regression models are sensitive to particular specifications used for the spatial weight structure in these models. We find little theoretical basis for this commonly held belief, if estimates and inferences are based on the true partial derivatives for a well-specified spatial regression model. We conclude that this myth may have arisen from past applied work that incorrectly interpreted the model coefficients \emph{as if} they were partial derivatives, or from use of mis-specified models.

Keywords: direct and indirect effects estimates, sensitivity to spatial weights

JEL Classification: C11, C21, C23